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Tuesday, March 25, 2014

Service Industry Not the Cause of Wage Polarization

Wage polarization is a growing
concern among both academics and government officials. Wage polarization is an occurrence
where lower skilled workers and higher skilled workers are vastly different in
their earning potential. Research by Author and Dorn (2013) discuss the reasons
why such polarization is occurring and which industries are raising lower skilled
employment opportunities.

The advent of technology is here!
Computerization of routine tasks is apparent and those who have not mastered
new skills are finding their jobs displaced. The past 25 years have experienced
a decline in lower skilled earnings and employment opportunities. The authors indicate
that changes are likely to occur across four dimensions:

1.) Greater adoption of information
technology;

2.) Reallocation of low-skilled
workers from routine tasks to service occupations;

3.) Larger increases in both
employment and wages at both the highly skilled and lower skilled labor
markets;

4.) Larger inflows into both the
high and low skilled labor markets.

The news isn’t all bad for lower
skilled labor markets. Service industry workers have an easier time finding employment
and higher wages. Between 1980 and 2005 the share of hours worked in the
service occupations rose by more than 50%. Real wages also increased 11 log
points significantly exceeding every other low skilled industry in the country.

The reason why this phenomenon
occurs is because routine tasks are easily replicable by computers while the
skills of communication and flexible customer care cannot be easily programmed into
strict computer processes. The ambiguous nature of handling customers and their
needs requires people who can make decisions on a constantly changing basis.

Who is capitalizing on new
technology? Higher skilled and educated workers can use computers to complement
their creative, abstract, problem-solving, and coordination skills. This is
raising their productive power in society and naturally raising their
compensation. A greater divide between the lower skilled displaced worker and
the higher skilled worker is apparent.

The service industry is helping
employ a greater proportion of displaced workers. It will be necessary to train
low skilled workers to find value on the market and raise their market earning potential. Some will be able to move into the service industry while others
will need to move into training programs. Those that do neither are more likely
to enter the chronically unemployed market.